The different course of Brazilian and foreign prices is apparent. After the initial fall to 418. 3d. in 1914 provoked by the liquidation of speculative accounts that followed the Balkan war, London quotations moved upward with the increasing charges for freight and insurance. The course of prices in Brazil was just the contrary. Since October, 1911, when owing to reckless speculation prices reached the maximum in both the Brazilian and the London market, prices in Brazil, with the exception of a slight reaction in 1915, due to extraordinary activity in the trade with Scandinavia and the United States, dropped continuously, until at 4$100 per 10 kilos it is doubtful if they sufficed even to cover the cost of production.

The facts that have been presented - the restriction of markets, the decline of prices, the abnormal accumulation of stocks in Brazil - find their most convenient expression in the figures of coffee exports. The following table shows the exports of coffee for the years 1913–17. Both quantity and value figures are given:

EXPORTS OF COFFEE FROM BRAZIL, 1913-17

Except for the reaction in 1915, it is seen that the trend of coffee exports, both in quantity and in value, was pretty steadily downward. The increased quantity exports of 1915, almost 4,000,000 bags greater than in 1913, is noteworthy. But because of reduced prices, the value figures of the 1915 exports were more than $40,

000,000 less than in 1913. After 1915 the decline in both categories is striking. The year 1917 was the low water mark. Quantity exported fell almost 6,500,000 bags below 1915, and the value fell over $44,000,000 below the 1915 figures, and over $86,000,000 below the 1913 figures, a decrease of 45 per cent. It ought to be said, too, that 1913 was by no means a normal year, exports of coffee being $28,114,880 below the 1912 figure.

A close second to the falling-off in coffee was the decline in exports of rubber, the other major export. The following table gives the quantity and value of rubber exported in the years 1913-17.

Rubber exports show a decrease of 2,252,000 tons and $6,788,000, or about 16 per cent. The table indicates, however, that the decline took place in 1914; in later years the trade slightly improved.

The discussion of coffee and rubber indicates sufficiently the reasons for the failure of the Brazilian export trade to expand during the war; and in consequence, explains why, while the trade balances of Argentina and Chile have been rising phenomenally, the Brazilian balance has undergone but little change. The table on the next page compares the trade balances of Brazil, Argentina, and Chile for the years 1910-17.

The difference between the Brazilian situation and that of Argentina and Chile is apparent at a glance. Except for the year 1913, a year of unusually large im

COMPARISON OF THE TRADE BALANCES OF BRAZIL, ARGENTINA AND

ports, the Brazilian balance was favorable. Except for the year 1915, however, the balance in favor of Brazil in the war years was about of the same size as in pre-war years. Meantime the balances in favor of Argentina and Chile show a large increase. Relating these facts to the course of foreign exchange, it is not surprising that in Argentina and Chile, by reason of the great excess of supply of exchange, representing the exports, over the demand for exchange, to pay for imports, exchange experienced a phenomenal rise; whereas in Brazil, where there was no such change in the trade balance, there was no such rise of exchange.

What in fact occurred, as we have seen, was a pronounced fall of exchange; and the balance of merchandise trade, by itself, does not provide an explanation of the fall. As in the case of Chile, there are but few data on the other items of the balance of payments; but for what are by far the most important items, foreign borrowings and interest payments, a fairly trustworthy computation can be made.

Financially, Brazil fared worse than any of the other South American republics during the war. The outbreak of war produced an acute situation, the reasons for which go back a considerable space into the pre-war period. Brazil had for long been accustomed to a large

inflow of foreign capital. The six year period 1908-13, in particular, witnessed a program of heavy borrowing, both by the federal and the state governments, and by private enterprise. The following figures show the amount of new foreign capital annually invested in Brazil during the period 1908-16:

AMOUNT OF NEW CAPITAL IN BRAZIL, 1908-16 1

The easy acquisition of foreign capital led the governments and private individuals into extravagances

into unusually large military and naval expenditure, into railway and other public projects which could yield a return only after some years of waiting. According to official statements, the revenues of Brazil for the five years 1910-14 totaled 2,762,008 contos (paper), while expenditures amounted to 3,514,155 contos, leaving the enormous deficit of 752,147 contos, or $238,123,000. During the first four years, 1910-13, the deficit was $159,123,000, or an average of $39,781,000 per year. In 1914 it was nearly double that sum. Owing to the war, the revenue decreased to 375,098 contos, while expenditures, tho considerably lower than in the preceding year, amounted to 636,781 contos, thus leaving a deficit of 261,683 contos, or $78,902,000.

The outbreak of war did more than cut down government revenue. It shut off the inflow of foreign capital which was at the bottom of the extravagant expenditure. The sudden cessation of investment in 1914, moreover,

1 Translation in the Pan American Magazine, November, 1918, pp. 16 et seq., of an official statement by Elysio de Carvalho.

* $5,500,000 lent to the municipality of São Paulo by United States banks.

COMPARISON OF THE TRADE BALANCES OF BRAZIL, ARGENTINA AND

ports, the Brazilian balance was favorable. Except for the year 1915, however, the balance in favor of Brazil in the war years was about of the same size as in pre-war years. Meantime the balances in favor of Argentina and Chile show a large increase. Relating these facts to the course of foreign exchange, it is not surprising that in Argentina and Chile, by reason of the great excess of supply of exchange, representing the exports, over the demand for exchange, to pay for imports, exchange experienced a phenomenal rise; whereas in Brazil, where there was no such change in the trade balance, there was no such rise of exchange.

What in fact occurred, as we have seen, was a pronounced fall of exchange; and the balance of merchandise trade, by itself, does not provide an explanation of the fall. As in the case of Chile, there are but few data on the other items of the balance of payments; but for what are by far the most important items, foreign borrowings and interest payments, a fairly trustworthy computation can be made.

Financially, Brazil fared worse than any of the other South American republics during the war. The outbreak of war produced an acute situation, the reasons for which go back a considerable space into the pre-war period. Brazil had for long been accustomed to a large